They must find it difficult, those who have taken authority as the truth, rather than truth as the authority.

Friday, June 18, 2010

Reality of America’s fiscal mess starting to bite

The various arms of the Ministry of Truth are never going to admit things are bad until it becomes so obvious that to deny it further would discredit them in the eyes of even the most ardent (read: plugged in, asleep) useful idiot. So you can be sure that when they tell you it's starting to get bad, it's really getting bad.

Financial Times -

If you pop into a toilet on the Seattle waterfront this summer, you might see over-flowing bins. The reason? A polite notice explains that “because of 2010 budget reductions”, the Seattle government can no longer afford to “service this comfort station” each day. Hence the dirt.

Investors would do well to take note. In recent months, America’s fiscal mess has assumed a rather surreal air. On paper, the country’s federal-level deficit and debt numbers certainly look very scary. But in practical terms, the impact of those ever-swelling zeroes still seems distinctly abstract.

After all, so far the federal government has not been slashing spending; on the contrary, there was a stimulus bill last year. And, as my colleague John Plender pointed out this week, Treasury bond yields have been falling as investors flee the eurozone woes. As a result, those scary numbers still seem to be a problem primarily concocted in the world of cyber finance.

But there is one place where reality is already starting to bite in America and that is in terms of state finances. Just look at the statistics. A report from the US Center on Budget and Policy Priorities issued last month estimates that in fiscal 2010 the US states collectively posted a $200bn-odd budget shortfall, equivalent to 30 per cent of all state budgets.